{"id":895763,"date":"2019-04-18T13:11:25","date_gmt":"2019-04-18T19:11:25","guid":{"rendered":"https:\/\/www.myconstructionexpert.com\/blog\/?p=895763"},"modified":"2019-05-23T09:24:10","modified_gmt":"2019-05-23T15:24:10","slug":"court-correctly-construes-that-particular-part-cgl","status":"publish","type":"post","link":"https:\/\/www.myconstructionexpert.com\/blog\/court-correctly-construes-that-particular-part-cgl\/","title":{"rendered":"The 10th Circuit Correctly Construes \u201cThat Particular Part\u201d Narrowly"},"content":{"rendered":"\n

David Smith | Farella Braun & Martel<\/a> | April 12, 2019<\/p>\n\n\n\n

We do not often write about coverage opinions from jurisdictions as far away as Oklahoma; however, a recent case from the Federal Tenth Circuit looked at one of our favorite topics and came out with a much better reasoned opinion than recent decisions from the Ninth Circuit.<\/p>\n\n\n\n

I\u2019ve written before on the topic of the meaning of \u201cthat particular part\u201d as the phrase is used in exclusions j (5) and j(6) of the Commercial General Liability (\u201cCGL\u201d) policy.  The \u201cj\u201d exclusions exclude coverage for damage to certain property.  Specifically, the j (5) and (6) exclusions state that the insurance does not apply to:<\/p>\n\n\n\n

(5)    That particular part of real property on which you or any contractors or subcontractors working directly indirectly on your behalf are performing operations, if the \u201cproperty damage\u201d arises out of those operations; or<\/p>\n\n\n\n

(6)    That particular part of any property that must be restored, repaired or replaced because \u201cyour work\u201d was incorrectly performed on it.<\/p>\n\n\n\n

The part of these exclusions that some courts consistently get wrong is the meaning of the phrase \u201cthat particular part.\u201d \u00a0In particular, in June 2017 I wrote about the way the Ninth Circuit (supposedly applying California law) has on several occasions ignored the insurance industry\u2019s own explanation of the meaning of the phrase \u201cthat particular part\u201d and applied the exclusion to the entire project a contractor was working on.<\/p>\n\n\n\n

For example, the insurance industry\u2019s own text books give the example of a general contractor dropping a steel roofing beam during the construction of a steel-frame building. The dropped beam fell while being hoisted and \u201cstruck and damaged other steel components that had already been erected.\u201d Because at the time the accident occurred the contractor was working on the beam that dropped, and not the other damaged building components, the damage to those building components was intended to be covered because it was not the \u201cparticular part\u201d being worked on. Donald S. Malecki, et al., Commercial Liability Insurance and Risk Management, 95-96 (3d ed. 1995) (\u201cNo coverage applies to \u2018that particular part\u2019 of real property damaged while work is being performed on it. But, by inference, coverage does apply<\/em> for damage to any other part of the property besides \u2018that particular part\u2019\u2026.\u201d) (emphasis in original). A number of other industry writings support this analysis, including materials published by the drafters of the actual policy wording, the Insurance Services Office.<\/p>\n\n\n\n

California law specifically allows the use of industry materials and resources to interpret insurance policies. See, e.g., Maryland Cas. Co. v. Reeder, 221<\/em> Cal. App. 3d 961, 973, n.2 (1990) (relying on industry publications to interpret the scope of exclusions in the 1973 CGL policy). Furthermore, California Courts of Appeal have already applied the exclusions narrowly. See, e.g., Pulte Home Corp. v. American Safety Indemn<\/em>. Co., 14 Cal. App. 5th 1086 (2017); Global Modular, Inc. v. Kadena Pacific, Inc.<\/em>, 15 Cal. App. 5th 127 (2017).<\/p>\n\n\n\n

Additionally, when a policy clause is ambiguous and capable of at least two reasonable interpretations, the court is supposed to construe the clause against the drafter \u2013 which in insurance contexts, is invariably in favor of coverage. This is true nationwide. See, e.g., Foster-Gardner, Inc. v. Nat\u2019l Union Fire Ins.<\/em> Co., 18 Cal. 4th 857, 869 (1998); Haworth v. Jantzen, <\/em>172 P.3d 193, 197 (Okla. 2006).<\/p>\n\n\n\n

A recent case out of the Tenth Federal Circuit looked at the \u201cthat particular part\u201d issue in a published opinion, MTI, Inc. v. Employers Insurance Company of Wausau<\/em>, __ F.3d __, 2019 WL 321423 (10th Cir. 2019), applying Oklahoma law. MTI, a contractor, was hired to replace corroded anchor bolts and castings in a wooden cooling tower. The contractor removed the old bolts but was delayed in installing the new ones. High winds blew the cooling tower down while it was left unsupported.<\/p>\n\n\n\n

MTI\u2019s insurer, Wausau, denied MTI\u2019s claim for the damage caused to the cooling tower and equipment inside, citing exclusions j (5) and j (6). MTI sued Wausau. Noting that the Oklahoma Supreme Court had not explicitly addressed the issue, the court looked at the way other jurisdictions had interpreted the clauses, finding that courts had ruled both ways (i.e.<\/em>, some courts held that the language restricted the exclusion\u2019s application to only the part of a project being worked on; others applied it to the entire project).<\/p>\n\n\n\n

Holding that both interpretations were reasonable, the MTI<\/em> court held that the exclusions were ambiguous and thus must be construed against the insurer. The court also opined that the insured\u2019s reasonable expectations would be for coverage for the cost of replacing the entire tower. While from a purist\u2019s point of view it\u2019s unfortunate that the MTI<\/em> court did not look at the insurance industry resources, it nevertheless reached the right conclusion, adding to the majority of jurisdictions that interpret these exclusions narrowly. We can only hope that eventually the weight of opinion (together with California law) will sway the Ninth Circuit on this issue.<\/p>\n\n\n\n

As an aside, the court also dismissed Wausau\u2019s argument that providing coverage of the tower converted the CGL policy into a performance bond. This is a red herring argument often used by insurers. The court noted that a performance bond guarantees completion of a contract upon the contractor\u2019s default, while a CGL policy spreads the contractor\u2019s risk. The monetary values at issue underlined this point: the value of the contract was $46,000; the value of the damage was $1.4 million. A performance bond for such a project would not result in liability of this amount.<\/p>\n","protected":false},"excerpt":{"rendered":"

David Smith | Farella Braun & Martel | April 12, 2019 We do not often write about coverage opinions from jurisdictions as far away as Oklahoma; however, a recent case from the Federal Tenth Circuit looked at one of our favorite topics and came out with a much better reasoned opinion than recent decisions from… Continue reading The 10th Circuit Correctly Construes \u201cThat Particular Part\u201d Narrowly<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_publicize_message":"","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":true,"jetpack_social_options":{"image_generator_settings":{"template":"highway","enabled":false},"version":2}},"categories":[30],"tags":[9895,4739,10780],"class_list":["post-895763","post","type-post","status-publish","format-standard","hentry","category-general-liability-policy","tag-advise-consult","tag-commercial-general-liability-policy","tag-that-particular-part","entry"],"jetpack_publicize_connections":[],"yoast_head":"\nThe 10th Circuit Correctly Construes \u201cThat Particular Part\u201d Narrowly - 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